B&K Sec -Welspun India - Initiating Coverage

INITIATING COVERAGE Welspun India (BUY)

© B&K Securities 2015

All Rights Reserved

Attention is drawn to the disclaimer andother information on the last page

Batlivala & Karani

MID CAP

Strong B2B model/Evolving B2C model

Welspun India (WLSI) is the market leader and the preferred supplier in thehome textile space having presence in towels, bed linens, rugs and carpets. WLSIhas integrated manufacturing presence from spinning to made-ups with latesttechnology which makes the business model sound and sustainable. WLSI has astrong pedigree for market research, innovation, supply chain, branding andretailing, the key intangibles to remain competitive in the business. WLSI hasdiversified client mix including most of the large retailers like Walmart, Macy’s,Bed Bath & Beyond, IKEA, etc. across geographies.

Year to March FY15 FY16E FY17E FY18E CAGR (%)

P&L data (Rs mn) FY15-18E

Revenue 53,025 59,896 68,462 79,609 14.5

EBITDA 12,742 14,315 15,507 17,395 10.9

Adjusted net profit 5,398 5,743 6,467 7,702 12.6

Margin (%)

EBITDA 24.0 23.9 22.7 21.9 –

Adjusted net profit 10.2 9.6 9.4 9.7 –

Balance sheet (Rs mn)

Total assets 56,953 64,932 68,837 72,783 8.5

Shareholders’ funds 14,319 18,382 22,958 28,407 25.7

Per share data (Rs)

EPS 53.7 57.2 64.4 76.7 12.6

CEPS 86.9 102.7 112.4 126.3 13.3

Returns (%)

RoCE 23.4 21.7 21.4 23.4 –

RoE 42.5 35.1 31.3 30.0 –

Resham Jain, CFA Nishant [email protected] [email protected]+91-22-4031 7133 +91-22-4031 7185

WLSI has multiple growth drivers like penetrating newer geographies, scalingthe newer product categories, expanding under-penetrated channels, etc.Improving global environment, increasing competitiveness of Indianmanufacturers and wider access to European market (if Europe FTA getscleared) will also help to keep the growth momentum.

WLSI’s increasing vertical integration, higher share of value-added productsand branded sales will keep the operating margin healthy while incrementalinvestment for capital heavy spinning and weaving through ancillary model(third party) will keep the return ratios healthy going forward. Increasingdividends, high capacity utlization and experience management providesadditional comfort.

At the current market price of Rs 647, the stock trades at 10.1x FY17E EPSand 5.9x FY17E EV/EBITDA. We initiate coverage with a Buy rating with atarget price of Rs 842, valuing the stock at 7.2x FY17E EV/EBITDA implyinga P/E of 13.1x FY17E EPS.

Share Data

Market Cap. Rs 65.0 bn (US$ 1,025 mn)

Price Rs 647

Target Price Rs 842

BSE Sensex 28,093

Reuters WLSP.BO

Bloomberg WLSP IN

6M avg. daily turnover (US$ mn) 1.3

52-week High/Low (Rs) 670/191

Issued Shares 100.5 mn

Valuation Ratios (Consolidated)

Yr to 31 Mar FY16E FY17E

EPS (Rs) 57.2 64.4

+/- (%) 6.4 12.6

PER (x) 11.3 10.1

PBV (x) 3.5 2.8

Dividend/Yield (%) 2.2 2.5

EV/Sales (x) 1.5 1.3

EV/EBITDA (x) 6.5 5.9

Shareholding Pattern (%)

Promoters 73

FIIs 4

MFs 4

BFSI's 1

Public & Others 18

Relative Performance

06 July 2015

0100200300400500600700

Apr

-07

Jan-

08

Oct

-08

Jul-0

9

Apr

-10

Jan-

11

Oct

-11

Jul-1

2

Apr

-13

Jan-

14

Oct

-14

Jul-1

5

Welspun India (Actual)Sensex

2WELSPUN INDIA

B&K RESEARCH JULY 2015

Index ...................................................................... Page No.

Investment rationale ..................................................................................... 3

Investment concerns .................................................................................. 10

Outlook and valuation ................................................................................ 11

Industry overview ...................................................................................... 14

Company background ................................................................................ 21

Financial statement analysis ........................................................................ 24

Detailed financials ....................................................................................... 27

3WELSPUN INDIA


Investment rationale

Market leader in B2B home textile industry

WLSI has been in the home textile industry since 1993 and has expanded gradually to become

one of the largest players in the industry. It has started with a towel facility with a capacity of

2,000 MT p.a. in 1993 and now it has become the preferred supplier for top retailers across 50

countries in the world. WLSI is the leading supplier to 14 of the top 30 US retailers. WLSI has

now become the differentiated end-to-end solution provider in home textiles. WLSI has created

one of the largest single location home textiles manufacturing facility at Anjar.

The company has continuously enhanced its manufacturing capacities over the last decade. It

enjoys strong relationship with its fabric and yarn suppliers because of which it is able to

enhance its front end capacity (processing) in the initial leg smoothly and upon its stabilisation

invested on backward integration gradually.

After starting its journey in home textiles through towels, it later diversified itself into bed linens

in 2005. WLSI also entered rugs and carpets segment in 2009, which it expects to scale-up over

the next few years. It has divided the product segment into three major categories as under:

Ranked the largest hometextile supplier to the US forthe 3rd consecutive year byHome Textile Todaymagazine in its annualsurvey done in February 2015

Relationship with top retailers across geographies

USA Europe UK

Bed Bath & Beyond Ikea Christy

Macy’s Carrefour Tesco

Walmart Jysk Marks & Spencer

JC Penney El Corte Ingles Debenhams

Target Vincenzo Zucchi S.p.A House of Frazer

Kohl’s Bassetti John Lewis

Kmart – Sears Auchan Sainsburry

Source: Company

Product categories

Bath Bedding Flooring

• Towels • Sheets • Carpets

• Bath robes • Top of Bed • Rugs

• Basic and Fashion Bedding

Key terry towel players in India

Company Revenue Capacity Planned Capacity Post

FY15 (Rs mn) (MT) expansion (MT) expansion (MT)

Welspun India 21,937 50,000 10,000 60,000

Alok 5,068* 13,400 Nil 13,400

Trident ~16,000 88,775 Nil 88,775

*Alok’s revenue is for 18 months for the period ending on 31st March 2015.

Source: Company, B&K Research

WLSI is the world’s largestterry towel manufacturerby turnover in India

Strong relationship withsuppliers helped in scalingup the business

Multi-products in hometextiles provides an abilityto cross-sell the productsand helps in leveraging theresources

4WELSPUN INDIA


US import of terry towels

Source: Company, OTEXA

Out of the total US importfor terry towels in CY14,WLSI’s share was ~16.4%which is ~45% of totalIndia’s export to USA

Key bed linen players in India

Company Revenue Capacity Planned Capacity Post

FY15 expansion expansion

(Rs mn) (mn meters) (mn meters) (mn meters)

Alok 17,577* 150 Nil 150

Welspun India 15,547 60 12 72

Indo Count Industries 15,034 68 Nil 68

GHCL 9,572 36 Nil 36

Himatsingka Seide 8,224 21 Nil 21

Trident Nil Nil 43 43

*Alok’s revenue is for 18 months for the period ending on 31st March 2015.


US import of bed sheets

Source: Company, OTEXA

Out of the total US importfor bed sheets in CY14,WLSI’s share is ~9.9%which is ~21% of totalIndia’s export to USA

Towels

28 30 30 35 36 36 37

21 22 2124 23 23 23

22 24 3025 26 26 26

29 25 20 16 16 16 14

2008 2009 2010 2011 2012 2013 2014

India Pakis tan China ROW

Bed Sheets

18 27 35 38 45 47 4727

2623 22 18 16 17

3429 29 24 22 25 23

22 18 13 16 15 13 13

2008 2009 2010 2011 2012 2013 2014

India Pakis tan China ROW

WLSI is the 2nd largest bedlinen manufacturer in India

5WELSPUN INDIA


15 top home textile supplier in USA

(US$ mn) 2013 2014

Welspun 632 649

Alok 542 647

Mohawk Home 556 565

Hollander Home Fashions 475 475

Carpenter 423 440

Himatsingka America 347 362

Oriental Weavers/Sphinx 315 337

Innocor 318 330

1888 Mills 300 315

Natco Home 225 280

Pacific Coast Feather 236 271

Indo Count Industries 221 249

Maples Rugs 237 240

Trident 205 228

Source: Home Textile Today, Business Annual – 2015

Multiple growth drivers

Geographical expansion: Currently, ~60% of WLSI’s revenue is concentrated in the US

markets (come down from ~73% in FY10), while the revenue from other geography is scattered

and small. The company is aggressively looking to penetrate markets like Asia Pacific, Latin

America, Europe and India to enhance the reach of its products. The management believes

that these markets have huge potential for growth and they have made the initial in-roads in

these markets which will help them to seize this opportunity.

Out of the total US$ 45 bn home textiles market, US market is around 30% where WLSI

commands dominant position in bed and bath products. The company believe that the proposed

EU-FTA can significantly improve the competitiveness of Indian players and gives access to

the European home textile market. The recent FTA with Japan and Korea will lead to improved

trade in the coming years. It also sees huge opportunity in the Indian market especially on the

branded side.

Multiple sales channels: WLSI predominantly caters to large retailers and brands across

geographies. WLSI is now aggressively looking at three different areas to expand its reach.

a) Institutional business: WLSI is looking to expand its institutional business. This

segment typically caters to hotel chains, hospitals and other wholesale requirements. This

will help to grow all its segments i.e. towels, bed linens, rugs and carpets. These orders

typically require customisation yielding better operating margins.

b) E-retailing: The company has launched its own brand of luxury bed and bath linen

‘Crowning Touch’ in the US market through third party e-retailers like Amazon, Overstock,

Wayfair, etc. and through its own website welspunbathandbedstore.com. WLSI also sells

its own brands like Christy and Spaces through e-commerce channel.

6WELSPUN INDIA


c) Branded business: WLSI’s branded sales in FY15 were ~11%. WLSI expects strong

growth for its Indian branded portfolio led by ‘Spaces’ and ‘Welhome’ with increased

penetration through SIS and e-commerce. WLSI has increased its reach for brand ‘Christy’

from UK to USA, China and Middle East. ‘Kingsley Home’, the company’s mass market

brand in the UK with a focus on bedding is expected to grow at the healthy pace with

increased penetration. It also expects its licenced brands ‘Amy Butler’ and ‘Annie Phllips’ to

grow at a healthy rate.

Scaling the under-penetrated product categories: WLSI expects a slightly moderate

growth in two of its major product lines i.e. towels and bed linens as compared to its new

product categories like bath robes, top of the bed, fashion bedding, filled products, rugs and

carpets. Each of these product categories are very large (at least US$ 1 bn each), providing

huge opportunity to grow for multi years.

Innovation, service and brands aiding faster growth

Innovation: From just a supplier of generic products where the focus was on sales rather

than marketing with limited efforts on designing, WLSI has come a long way to become one of

the most admired companies for supply of home textile products. In the year 2000, the

company decided to invest in product developments and design capabilities. Later, the

innovation also included processes, practices and people. WLSI’s innovative products as a %

of sales are continuously increasing and stood at 31% of revenue in FY15. The company has

total 12 patented products, most of which are pending for approval. HYGRO COTTON®,

SOFTSHIELD™, SPOTSTOP™, EVERSMOOTH™, FLEXIFIT®, DRYLON®,

RESILON™ are few such trademark and patented products of WLSI.

Properties of Hygro cotton: Hygro cotton® is a patented spinning technology that uses a

hollow core cotton yarn. The fabric made from Hygro cotton® is ultra soft, ultra absorbent

and plumps up after every wash, thus maintaining its soft and plush feel. Hygro cotton® also

helps to regulate the temperature of the fabric, keeping it cool in the summers and warm in the

winters, which makes it an ideal sheeting product.

A typical display of such patent on third party brand

Amazon’s private label brand Tesco’s e-retailing website

Source: www.amazon.com; www.tesco.com

Hygro yarn

Source: Company

7WELSPUN INDIA


The company currently has a large design team (including a team of product development and

innovation) in India (Mumbai, Anjar and Vapi) and USA. It has three design studios in USA,

UK and Mumbai. WLSI complemented the product development skills with global sales network

providing constant inputs on consumer requirements. Currently, it has 110 people team to

support its innovation, design and development.

Service: WLSI is actively involved in consumer research studies by engaging organisation

like ‘NPD Group Inc’ and ‘Just ask a Woman’ for consumer insights and suggesting its customers

about the latest trends and customer requirements. Through market intelligence, the company

also conducted grid analysis of its key customers with respect to product range, fast moving

items, best selling SKUs, attractive price points, etc.

WLSI also works as an extended supply chain partner for its retailer. From, just being a supplier

to retailers through intermediaries (exporters and buying house), it has come a long way to

become a direct supplier to these retailers. Initially, this shift to establish direct relationship

with customers impacted its sales but it paid off eventually. The important step in this direction

was utilising IT as an integrator. It adopted SAP R/3 to integrate operations, marketing and

supply chain to create seamless integration with customers. In addition to the Indian warehouses,

WLSI have strategic facilities in Ohio, USA and Manchester, UK supported by SCM and co-

planning team to provide support on inventory and Vendor Managed Inventory (VMI). It is

now involved with retailers for collaborative forecasting, planning and replenishment of

products (production to point of sale).

Branding: Branding is a key area for the company from the last few years. WLSI is creating

brand within its B2B business as well through appropriate packaging for apt communication,

point of sale communication programme to explain the key functional product attributes,

product trademarks and patents. WLSI has launched ‘Hygro’ branding campaign in the US last

year, showcasing the key attributes of the products. It also plans to invest for its domestic and

global brand portfolio. All these steps are expected to aid in faster growth.

Innovation across product categories

Source: Company

8WELSPUN INDIA


Branded sales trend (Select brands)

(Rs mn) FY10 FY11 FY12 FY13 FY14 FY15E

Spaces 80 150 180 290 430 580

Welhome 450 550 110 70 40 120

India branded sales 530 700 290 360 470 700

Christy 1,565 1,411 1,547 1,741 2,334 2,686

Total 2,095 2,111 1,837 2,101 2,804 3,386

Note: WLSI closed its owned Welhome stores in FY12 and now growing it through SIS.

Operating margin to remain healthy

We expect the margin to remain healthy between 22-24% over the next few years. This is

mainly supported by:

• Economies of scale (operating leverage).

• Increase in vertical integration (backward integration through spinning and weaving capacity

and forward integration through branded sales).

• Improving product mix, customer mix and geography mix.

• Higher automation (resulting in lower employee cost as a % of sales and improvement in

productivity).

• Favourable cotton and yarn market (Short-term) (over long-term price gets adjusted).

• Favourable exchange rate (Short-term) (over long-term price gets adjusted).

Moderate risk to industry margin post FY17: One of the major risks to the margin

expectation is with respect to export incentives, which currently stands at ~9% of revenue

(~7% duty draw back and ~2% MEIS). The interest subvention for export credit of ~2%

(pre-shipment and post-shipment packing credit) is already discontinued by the government

last year. As per the WTO agreement, when the share of a developing country (Per capita

income below US$ 1,000) in global exports touches 3.25% in any product for two straight

years, then the country need to phase out the export incentives for the items eight years

from the second year of breach. India has first breached the threshold in 2005 and remained

above the level in 2006 as well. Therefore all the export incentives should ideally be stopped

by January 2015.

The other view is that the general WTO norms permit import duty neutralisation for exports

and thus the duty drawback scheme (~7%) will not be affected.

India’s take on WTO phase out: India is deliberating with WTO on this issue of definition

of product (many items within the textile and clothing group are yet to achieve export

competitiveness) and applicable period of phasing out subsidy.

Solution to WTO phase out: The textile ministry is planning to replace export based

incentives by production based incentives. TUFS is one such scheme which is linked to

production and not exports.

9WELSPUN INDIA


Integration will aid in maintaining healthy and sustainable margins/Future investment on backward integration through ancillary model toimprove return ratios

WLSI is one of most well integrated company in the home textile space. It is present in the

entire manufacturing value chain right from spinning till made-ups along with captive power

plant. It has higher processing capacity as compared to its weaving and spinning capacities.

The company outsource ~30% of its yarn and fabric requirement from third party. WLSI has

gradually increased its spinning and weaving capacities to keep the in-house manufacturing

proportion at ~70%, which helps in maintaining the consistent quality of the final product and

ensure better service levels/reliable SCM. This also provides the flexibility to the company in

planning the production programmes efficiently.

WLSI is considering to increase its spinning and weaving capacity through ancillary model in

future, whereby it will allow third party to co-locate their plants with WLSI. WLSI will assure

the off-take based on the arm’s length pricing formula mutually agreed. This will help WLSI to

focus on higher valued-added activities including processing, marketing, distribution and

retailing. This will also aid in improving the return ratios as the incremental investments are

mostly into asset light businesses.

COTTON (Mostly lower staple length)

Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING

~70% in House

100% In House

100% In House

100% In House

~30% Yarn Purchased

from Third Party

CAPACITY 407 Looms

LOCATION Vapi and Anjar

CAPACITY 60,000 MT



Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING

~70% in House

100% In House

100% In House

100% In House

~30% Yarn Purchased

from Third Party


Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING


Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING

~70% in House

100% In House

100% In House

100% In House

~30% Yarn Purchased

from Third Party

CAPACITY 407 Looms


CAPACITY 60,000 MT


Tow

els

Welspun’s value chain integration across product lines


Be

dLi

ne

n

COTTON (Mostly long staple length)

Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING

100% In House

~60% In House

100% In House

100% In House

~40% Fabric Purchased

from Third Party

CAPACITY 474 Looms

LOCATION Anjar

CAPACITY 72 mn meters per year

LOCATION Anjar


Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING

100% In House

~60% In House

100% In House

100% In House


from Third Party


Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING


Brands & Retail

MADE UPS

SPINNING

WEAVING

DISTRIBUTION

PROCESSING

100% In House

~60% In House

100% In House

100% In House


from Third Party

CAPACITY 474 Looms

LOCATION Anjar

CAPACITY 72 mn meters per year

LOCATION Anjar

10WELSPUN INDIA


Investment concernsNegative global clues could impact demand conditions: WLSI revenue are spread

across the globe with larger concentration of its revenue from US/Europe markets; hence any

adverse impact on global economy could negatively impact the demand. We saw the similar

situation in the industry (demand tapering) post the sub-prime crisis in 2008. Moreover, some

of the high end products see larger impact on the demand because of its discretionary nature

during these times. Postponement of demand is the typical behaviour of the consumers resulting

in deeper impact on demand conditions. Any such event can impact WLSI’s revenue and

profitability.

Sharp rupee appreciation may impact the margins till the price revision takes

place: Majority of WLSI’s revenue come from exports. Extremely volatile currency

movements may impact the company’s competitiveness as well as margins. The recent

depreciation of rupee is providing WLSI an edge over some of its competitors in China,

Pakistan and Turkey, but sharp appreciation of rupee may create demand and margin pressure

on its manufacturing division. In the past few years, WLSI follows the pricing discipline because

of the exchange rate volatility whereby any appreciation/depreciation (+/-5%) is adjusted on

a semi-annually/yearly basis. Thus, sometimes margins may get impacted for short-term till the

price revision takes place.

Increase in competitive rivalry: WLSI has two major products line i.e. towels and bed

linen. In the towel segment, the competition is mostly from few players from China, Pakistan

and India. For the products served by WLSI, the major competition is from Trident Limited,

since it has recently doubled its towel capacity (largest towel capacity in the world) and plans to

ramp-up the capacity to absorb the fixed cost. In this process, the WLSI may need to compete

in certain basic products, which may impact its margins in short-term. On the bed linen side,

most of the company competition is from Alok, Indo Count Industries, GHCL, Himatsingka

Seide and Trident (upcoming capacity). Most of the players except Alok (working on lower

utilisation) has increased their capacity or are planning to increase their capacity. This may

increase the competitive rivalry between the players leading to pricing pressures and strain on

operating margin.

Inherent risk of venturing into new segments: WLSI is investing into new products,

technologies, innovation for its future growth. In the past, the company has been successful to

implement such projects profitably. At the same time, inability to adopt or execute new

technology or failure to market the new products/brands effectively could impact the profitability

of the company.

11WELSPUN INDIA


Outlook and valuationWLSI’s revenue, EBITDA and PAT is expected to witness CAGR of 14.5%, 10.9% and

12.6%, respectively, over FY15-18E supported by volume growth and healthy margins. Under-

penetrated geographies, under-penetrated product segments and under-penetrated sales

channels on the micro side and improving global environment, increasing competitiveness of

Indian manufacturers and wider access to European market on the macro side will aid the

growth momentum.

WLSI’s capex plan of Rs 25 bn over FY14-16E is focused towards increasing spinning and

weaving capacity as a part of backward integration (~Rs 13 bn) and to modernise and enhance

finished product capacity for optimal efficiency and growth (~Rs 12 bn). This will help the

company to earn stable and consistent operating profits.

The company has consistently performed over the last three years after the reorganisation of

its businesses in FY12 (merger of marketing division, closing non-performing international

manufacturing and closed own retail network). The relative debt level measured through net

debt/EBITDA fell from 4.6x in FY12 to 1.9x in FY15 despite incurring capex of Rs 25 bn

during this period. We believe the relative debt levels to further reduce to ~1x by FY18E. This

according to us is the key transformation for WLSI and warrants re-rating. WLSI has first time

announced the dividend distribution policy along with FY15 results to pay 25% of its PAT as

dividend, which further improves the case for re-rating.

Average EV/EBITDA multiple of the similar companies is ~5.5x (see table below). We have

assigned 30% premium to the valuation multiple to adjust for the higher than average return

ratios. We initiate coverage on the stock with a Buy rating with a target price of Rs 842/share

(We have valued WLSI based on 7.2x FY17E EV/EBITDA). At the current market price of Rs

647/share, the stock is trading at 5.9x FY17E EV/EBITDA.

Efficient and staggeredcapital allocation aiding tobuild stable businessmodel

Falling relative debt levels,increasing return ratiosand rising dividend are keyvariables resulting inmultiple re-rating for thestock

Peer valuation matrix

FY17E PER (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

Arvind 12.3 2.0 7.5 17.3 17.1

Vardhman Textiles 6.2 1.0 4.1 16.0 16.5

Himatsingka Seide 5.1 0.8 4.8 14.8 15.7

Indo Count Industries 10.2 3.8 6.8 53.7 36.1

Trident 3.1 0.7 4.9 14.4 –

KPR Mill 7.8 1.7 4.6 23.4 23.4

Average 7.4 1.7 5.5 23.3 21.8

Welspun India (FY17E) 10.1 2.8 5.9 31.3 30.0

Implied multiple based on target price 13.1 3.7 7.2 – –

Note: All the numbers are based on B&K estimates except Trident which is based on Bloomberg estimates.

12WELSPUN INDIA


Key business comparison of home textile players in India

Company Business Revenue mix Manufacturing Exports Integration Rated Return (%)

location (%) 1-mth 3-mths 6-mths 12-mths

Himatsingka Weaving/ Manufacturing – 49% Hasan/ 96 Partially BUY 3.9 13.6 (1.2) 19.1

Seide Processing/ (Premium bed Bengaluru

Made-ups/ sheets and silk drapery

Distribution/ and upholstery) and

Captive Retail & Distribution

Thermal plant – 51%

Welspun Spinning/ Terry towel – 42%, Anjar/Vapi 95 To a greater BUY 10.6 90.1 95.4 274.9

India Weaving/ Bed linen products – extent

Made-ups/ 29%, Rugs – 5%,

Distribution/ Subsidiary – 11%

Captive and Others – 13%

Thermal plant

Indo Count Spinning/ Yarn – 13%; Kolhapur 84 Partially BUY 21.6 89.2 103.4 691.6

Industries Weaving/ Bed sheet – 84%;

Processing/ Others – 3%

Made-ups

Trident Spinning/ Yarn – 46%; Punjab/MP 48 Completely Not (15.3) 10.4 (10.2) (9.3)

Weaving/ Towel – 35%; Rated

Processing/ Paper – 19%

Made-ups

Alok Spinning/ Apparel fabric – 77%, Vapi 17 To a greater Not (12.3) (9.7) (40.1) (56.5)

Weaving/ Polyester yarn – 11%, extent Rated

Made-ups/ Bed sheets and

Captive Towels – 10%,

Thermal plant/ Others – 2%

Polyester chips/

POY/FDY/PTY

13WELSPUN INDIA


Adjusted EPS Total debt Net debt/Equity Net debt/EBITDA RoCE

Company (Rs) (Rs mn) (x) (x) (%)

FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15

Himatsingka Seide 4.0 6.9 9.7 7,030 8,136 7,567 1.1 1.1 0.9 4.3 3.9 3.4 8.8 10.4 11.3

Indo Count 12.7 31.0 43.6 4,110 4,341 4,276 2.1 1.4 0.9 3.6 2.2 1.2 17.7 25.3 36.5

Welspun India 22.8 56.4 53.7 20,279 30,293 28,480 1.8 2.4 1.6 3.1 3.0 1.9 16.3 21.4 23.4

Alok 1.4 – 1.2 200,122 – 180,085 5.7 – 4.4 4.4 – 3.2 12.2 – 11.1

Trident 1.6 6.2 2.3 22,398 18,623 25,117 3.1 2.0 1.7 4.0 2.5 3.6 10.4 16.0 10.6

Key financial comparison between home textile players in India

Company CMP Target M-Cap Net sales EBITDA margin Interest cost Adjusted PAT

(Rs) price (Rs mn) (Rs mn) (%) (Rs mn) (Rs mn)

(Rs) FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15

Himatsingka Seide 91 130 8,945 16,894 20,282 19,406 9.3 9.9 11.1 653 828 857 398 675 952

Indo Count 696 643 27,462 12,084 14,892 17,818 9.2 12.1 17.6 498 499 641 449 1,098 1,722

Welspun India 647 842 65,030 36,473 44,954 53,025 16.3 20.5 24.0 1,977 2,352 2,829 2,279 5,659 5,398

Alok 7 NA 9,297 213,884 – 241,531 21.5 0.0 20.9 28,136 – 35,127 4,206 – 2,597

Trident 26 NR 13,179 33,352 38,690 37,860 16.7 18.8 18.3 2,353 2,103 2,060 493 1,940 1,179

RoE PER Price/Book value EV/EBITDA Dividend yield

Company (%) (x) (x) (x) (%)

FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15

Himatsingka Seide 6.6 9.8 12.3 7.3 8.4 8.3 0.5 0.8 1.0 6.1 6.8 7.1 3.4 2.6 2.5

Indo Count 96.3 96.0 70.3 0.8 1.3 8.6 0.6 0.8 4.6 3.9 3.0 5.9 – – –

Welspun India 26.5 53.9 42.5 3.0 1.8 6.6 0.7 0.9 2.5 4.2 4.1 4.7 5.6 3.0 3.0

Alok 12.1 – 7.1 5.7 – 5.9 0.3 – 0.3 4.0 – 3.3 21.6 – –

Trident 7.3 24.4 10.1 4.8 2.4 9.9 0.3 0.5 0.8 4.4 3.1 5.3 – 2.9 1.6

Note: Alok results are for 18 months from 1st April 2012 to 30th September 2013 mentioned in FY13 column while FY15 numbers reflect results for 18months from 1st October 2013 to 31st March 2015

14WELSPUN INDIA


Industry overview

Textile industry overview

The global textile and apparel market size is estimated to be ~US$ 1.1 trn and expected to

touch ~US$ 2 trn by 2025 based on the report ‘The road to 2025’ published by Wazir advisors,

since 75% of the current market is concentrated only by one-third of the population (EU-27,

USA, China and Japan) which reflects extremely large opportunity of growth in emerging

economies.

Changing dynamics: Phasing out of Multi Fibre Agreement (MFA) in 2005 changed the

dynamics of the industry with shifting of manufacturing from some of the European countries

to Asian countries like China, India, Bangladesh and Vietnam. Also over these years the domestic

market in China and India themselves have started growing with GDP growing much faster

than developed countries.

Global trade continue to grow: The global textile and apparel trade is worth US$ 766 bn

in year 2013. Over the years, textile manufacturing saw a gradual shift of manufacturing base

from developed to developing countries. Exports of Asian countries have increased substantially

over the last two decades in comparison to western world especially EU-27. China contributes

37.1% (US$ 284 bn) of the world exports whereas India contributes 4.7% (US$ 36 bn).

Global apparel market size2012 (US$ bn)

No. Region Apparel

market size

1 EU-27 350

2 United States 225

3 China 150

4 Japan 110

5 Brazil 55

6 India 45

7 Russia 40

8 Canada 30

9 Australia 25

10 Rest of the World 75

Source: The Road to 2025 published byWazir Advisors.

Global textile and apparel exports

Source: WTO (*Estimates from Industry data)

198309 346 364 316 351 422 460 520

650157

220 237 248210

251286

306340

430

1,080

860766

708

602525

612583529

355

0

200

400

600

800

1,000

1,200

2000 2006 2007 2008 2009 2010 2012 2013 2015* 2020*

USD

bn

Clothing Textiles

World trade share (Top 10 countries)

2013 – Textile exports share

Country US$ bn % share

China 107 34.8

India 19 6.2

Germany 15 4.9

United States 14 4.6

Italy 13 4.4

Turkey 12 4.0

Korea 12 3.9

Hong Kong 11 3.5

Taiwan 10 3.3

Pakistan 9 3.1

2013 – Clothing exports share


China 177 38.6

Italy 24 5.2

Bangladesh 24 5.1

Hong Kong 22 4.8

Germany 18 4.0

Vietnam 17 3.7

India 17 3.7

Turkey 15 3.3

Spain 12 2.5

France 11 2.4

15WELSPUN INDIA


2013 – Textile import share



China 22 6.7

Germany 14 4.2

Vietnam 11 3.3

Hong Kong 10 3.2

Japan 9 2.7

Italy 9 2.6

France 7 2.3

United Kingdom 7 2.3

Turkey 7 2.1

Source: WTO

2013 – Clothing import share



Germany 35 7.4

Japan 34 7.0

France 23 4.9

United Kingdom 23 4.7

Hong Kong 16 3.4

Italy 16 3.3

Spain 15 3.1

Netherlands 13 2.7

Canada 10 2.1

Textiles and Clothing exports of major Asian players (Indexed to 100)

Source: WTO *Including Hong Kong

0

100

200

300

400

500

600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

%

India China*Pakis tan Bangladesh

Bangladesh grew swiftlypost 2009...

Indian textile overview

One of the most important sectors for the economy: India is the second largest

producer of textile and clothing products after China. Being the largest producer of cotton in

the world, India enjoys natural benefit compared to most of the countries. Textile industry,

being a major contributor to GDP (~4%), Industrial Production (~14%), Exports (~17%) and

Employment (35 mn people), it enjoys favourable treatment from Government compared to

many other sectors in the country. During FY14, Indian textile sector was ~US$ 90 bn, out of

which US$ 36 bn is towards exports. According to the industry estimates, Consumer Textile

(Apparel) contributes ~70%, while Home Textile and Technical Textile contribute ~8% and

~22%, respectively.

India export market isexpected to see a substantialjump on account of ease ofavailability of cotton,ability to handle smallorders, better designingskills, availability of skilledmanpower, and learningcurve over the years andcontinuously adopting thechanges coming in theindustry through variousinitiatives from government

16WELSPUN INDIA


Textile and Clothing’s contribution to India’s GDP (2012)

Source: Technopak Report (2012)

How India fares among other Asian peers...

(US$ bn) China India Bangladesh Pakistan Vietnam Combodia World

2013 284 36 25 14 22 5 766

% share 37.1 4.7 3.3 1.8 2.9 0.7 –

2000 52 12 5 7 2 1 353

% share 14.8 3.3 1.5 1.9 0.6 0.3 –

CAGR (%) 13.9 9.1 12.6 5.8 19.7 13.6 6.1

Source: WTO

Global home textile market

Based on the industry estimates, the world trade in home textiles is valued at US$ 45 bn, out of

which cotton fibre accounts for ~50% followed by the man-made fibres.

In terms of products bedding is largest segment with ~54% share followed by bath with 25%,

window with 14% and kitchen and dining with 7% share.

China contributes ~33% to the home textiles trade followed by India which contributes ~11%.

India, China and Pakistan contribute ~85 of the home textile exports into the US market. In

European market, Turkey and Bangladesh are also key players along with the China, India and

Pakistan since both these countries enjoy duty-free access in the region. Within the home

textile space, India enjoys dominant position in the cotton led textile products. India’s share in

the cotton bed sheets and cotton towels of the total US import is ~47% and ~37%.

Home textile product classification

Bed linen (bedspreads, blankets, pillow cases, quilts, sheets, etc.)

Household textiles Bath linen (bath mats, bath rugs, towels, washing gloves, etc.)

Kitchen linen (table linen, dish towels, etc.)

Window covering (curtains and drapes)

Furnishing textiles Wall and ceiling coverings

Upholstery, decorative pillows, throw rugs, etc.

17WELSPUN INDIA


Distribution channels for home textiles

Home textiles in the US and Europe are imported from China, India and Pakistan through

general trading companies or specialty textile trading companies, and then are distributed via

wholesalers and dealer agents to department stores, specialty stores and other retail outlets.

Many domestic brand makers serve as import agents for foreign brand names, and they distribute

through the same channels as their own products.

Department stores and mass merchandisers increasingly import direct from abroad or bring in

development imports for sale under private brand labels. Other sales channels are proliferating

as well, including catalogue sales and online shopping.

Linen supply services that provide bed linens used by hotels and hospitals and hand towels and

other commercial use towels used by beverage establishments acquire imported linens directly

from general trading companies or specialty trading companies.

Distribution channels

Source: Marketing guide for Asean Exporters to Japan.

Manufacturing – Wholesalers

General Trading Company/Textile Trading Company

Wholesalers/Authorised Dealer Agents

DepartmentStores

BeddingSpeciality

Stores

FurnitureStores

OtherRetailers

Linen Supply & ServiceCompanies

Home Textile Consumers Hotel & Other Institutional Customers

Home Textile manufacturer in Asia

CorporationMass

Merchants

Top home textile retailing giants of USA

Rank Store Company Home textile Home textile as a % Market Number

type revenue (US$ mn) of total revenue share (%) of stores

1 DC/SC Walmart 4,375 1.6 16.5 4,203

2 SP Bed Bath & Beyond 4,140 36.0 15.6 1,456

3 DC/SC Target 2,455 3.4 9.3 1,793

4 DP Kohl’s 1,290 6.8 4.9 1,158

5 DP Macy’s 990 NA 3.7 789

6 DP/DTC JC Penney 905 7.8 3.4 1,094

7 DC T.J. Maxx/Marshalls 856 4.8 3.2 2,025

8 DC/SC Kmart 730 5.5 2.8 1,152

9 DC Ross Stores 590 5.8 2.2 1,276

10 SP IKEA 530 12.1 2.0 38

Note: DC – Discount department store; SC – Supercenter (includes food in merchandise mix); SP – Specialty store; DP – Department store; DTC – Directto Consumer. Source: Home Textile Today (2014).

18WELSPUN INDIA


Pricing of product

Source: Company

Home textiles: Porter Five Force analysis

Five Forces Spinning Weaving Processing Made-ups Distribution Retailing

Entry Barriers Low Medium High Low Medium High

Intensity of Competition High Medium Medium High Medium High

Bargaining Power of Customers High Medium Medium High Medium High

Bargaining Power of Suppliers Low Low Medium High* Medium Medium

Threat of Substitutes Low Low Low Medium** Medium Medium

Source: B&K Research. *Labour Force. **Increasing automation.

May&Co,Federated,

Dillard’s

BB&B, Kohl’s

J C Penny, Target

Wal-Mart, K Mart,

Costco

Tommy Hilfiger,

Nautica, Polo Ralph

Lauren, DKNY, Calvin

KleinDesigner Brands

Department Stores

Specialty Stores

Fashion Stores

Mass Merchantsx

+ 5-7%

+ 13-15%

2x

Retail Price

Expansion

3x

Indian home textile market

Home textile market size

Source: B&K Research, Industry

Global home textiletrade ~US$ 45 bn

India’s home textileexport ~US$ 6 bn

India’s home textilemarket size ~US$ 12 bn

Global textile and Clothing marketsize ~US$ 1,100 bn

Global textile and Clothing trade~US$ 766 bn

Global clothing trade~US$ 460 bn

Global textile trade~US$ 306 bn

19WELSPUN INDIA


India’s home textile market is ~US$ 12 bn. Out of which, ~50% is exported and mostly

cotton-based textile products. Among the product categories, bed linen is the dominant category

accounting ~50% of the entire size.

Exciting times for export market: India export market is witnessing exciting times in the

home textile space in the global trade on account of ease of availability of cotton, ability to

handle small orders, better designing skills, availability of skilled manpower and learning curve

over the years and continuously adopting the changes coming in the industry through various

initiatives from government. Over the years, the industry’s competitiveness has increased

against most of its competing countries because of:

1) Ease of availability of good quality raw material (India is a net exporter of cotton and

cotton yarn).

2) Increase in wages in China is much faster than India over the last few years.

3) India has strong integration across the value chain unlike Bangladesh and Pakistan.

4) Attractive and favourable government policy (mainly to generate employment and foreign

exchange).

5) Ease of trade and work environment as compared to Bangladesh (Worker’s safety issues)

and Pakistan (Geopolitical issues).

Key parameters of comparison between major competing countries

Parameters India China Bangladesh Pakistan

Cotton production 2014/15 (mn MT) 6.5 6.4 Negligible 2.1

Cotton consumption 2014/15 (mn MT) 5.4 7.9 1.0 2.3

Wages (US$) – CY12 140 240 60 110

Manufacturing made-ups (Factor Cost Index) 100 111 87 98

Movement in domestic currency (FY09-14) (%) (18) 9 (12) (22)

Integration across value chain Strong Strong Weak Moderate

Textile and Clothing as a % of GDP 4 7 13 8.5

Source: www.Cottoninc.com, Technopak Analysis, Gherzi Benchmark study (Texprocil), Bloomberg.

Ranking of Indian home textile companies as supplier in USA

Rank Company Sales ~US$ mn – 2014

1 Welspun 649

3 Alok – US 647

6 Himatsingka America 362

14 Indo Count Industries 249

15 Trident 228

Source: Home Textile Today (Business Annual 2014).

Domestic home textile market also looking up: Indian domestic market is expected

to see a significant growth in the coming years especially on account of higher disposable

income, increasing retail penetration, favourable demographic profile, higher growth in

urban population, etc.

20WELSPUN INDIA


Domestic home textile market (Rs mn)

Source: Technopak

407,800

273,650

184,000

2011 2016 (P) 2021 (P)

Category-wise market break-up (Rs mn)

Categories 2011 2016 (P) 2021 (P) CAGR (%)

2011-21

Bed Linen 89,650 131,700 193,500 8.0

Towels 33,200 48,400 70,600 7.8

Curtains 18,500 29,750 47,900 10.0

Blankets 14,650 20,400 28,500 6.9

Upholstery 11,900 19,150 30,800 10.0

Kitchen Linen 11,100 16,350 24,000 8.0

Rugs & Carpets 5,000 7,900 12,500 9.6

Total 184,000 273,650 407,800 8.3

Indian home textile retail market

Based on the presentation made during Home Fashion India Week, share of organised home

retail in India is ~6% of total market. Urban home furnishing retail and institutional home

furnishing market is estimated to be Rs 93 bn (2010) and Rs 5.3 bn (2010), respectively. Bed

products are the dominant category followed by bath product, together they account for 66%

of the entire market. Home textile retail market has seen the entry of manufacturers and

apparel retailers over the last decade where most of the stores are still evolving in terms of

size, display & sale and location.

Organised market in home textiles

Specialty home retailers @home, HomeStop, Atmosphere, Welhome, Good Earth, Bombay

Dyeing, Portico, Kurlon, Maspar, Carmichael House, Roseby, etc.

Big-box (Soft + Hard Home) HomeStop, Home Centre, Home Town.

Departmental stores Big Bazaar, Shoppers Stop, Lifestyle, Central.

MBOs Jagdish Store, Bharat Furnishings, etc.

21WELSPUN INDIA


Important timelines

1985 Incorporated as Welspun Winilon Silk Pvt. Ltd. (a synthetic yarn company).

1994 Started terry towels unit in Vapi.

1995 Commissioned cotton yarn spinning unit.

1997 Bathrobes Joint Venture with Zucchi, Italy (for manufacturing).

2000 Incorporated Welspun USA.

2002 Vendor of the year award from Walmart and JC Penney.

2005 Set-up manufacturing facility at Anjar for Terry Towels and Bed Linen.

2006 Acquired 85% stake in Christy, UK (150-year-old heritage brand).

2007 Acquired fashion and basic bedding manufacturing facility (Mexico). Acquired 76% stake in

bath rug manufacturer (Portugal). (Divested in FY12).

2008 Set-up bath rug manufacturing facility in Vapi.

2009

Welspun India Limited de-merged its Sales & Marketing and Investment divisions into two

separate companies – Welspun Global Brands Ltd. and Welspun Investments & Commercials

Ltd., respectively.

Licence to sell Nautica in the US and Canada and Tommy Hilfiger in India. (Divested in FY12).

2010 Raised Rs 1.56 bn through QIP route.

2012 Welspun Global Brands Ltd. becomes a subsidiary of Welspun India Limited.

2013 Largest supplier of home textile in USA.

2014 Capex on backward integration.

Company backgroundWelspun India Limited (WLSI) started its operations in 1985 as a yarn company and forayed

into home textile in 1995. It is currently one of the largest home textile players globally having

presence in towels, bed linen, rugs and carpets. All the manufacturing plants are located in

Gujarat. It has increased its integration over the last few years to provide more flexibility to its

weaving and processing facility. Export contributes ~95% of revenue.

WLSI’s – Swot analysis

Strength Weakness

• Integrated (market research to distribution). • Many moving and volatile variables like cotton prices, currency, geo-political issues,

• Strategically located manufacturing facilities. demand environment, etc.

• Diversified product portfolio. • Dependence on large retailers.

• Diversified clientele.

Opportunity Threat

• EU FTA to provide larger access to 2nd largest • Changes in government policies related to investment benefits or export incentives.

global market. • Emerging low cost textile manufacturing hubs.

• Product diversification. • Large e-retailers may disrupt the already established branded distribution network.

• To increase its branded business globally.

• Labour reforms.

22WELSPUN INDIA


Business verticals

Retailer solutions • WLSI has the complete suite of products and services for home textiles for all the major retailers globally.

• The product includes terry towels, bath mats, area rugs, bed sheets and basic bedding products.

• The critical function includes product design and development, forecasting and planning, marketing and distribution.

• Suppliers to major retailers like Walmart, Target, Costco, Macy’s, Kohl, JC Penney, Tesco, John Lewis, Carefour, IKEA, etc.

Brands • WLSI has some of the most formidable home textile brands across the world under its flag.

• WLSI has brands like Christy, Kingsley Home, Crowning Touch, Spaces, Welhome, Amy Butler and Spun.

Hospitality • WLSI provides bed, bath linen and decorative products (throws, quilts and rugs) to major hotel chains, Spas & Resorts,

solutions Cruises & Liners and distributors globally.

Advanced textiles • WLSI has recently entered into this segment and is present in the disposables and durables segment of the market.

• Wipes, wound care, hygiene care and drapes & gowns are few product lines on disposables side

• Automotive, protective, filtration, coating substrates and home textiles are few product lines on durables side.

Manufacturing capabilities

WLSI has two manufacturing facilities, one in Vapi and other in Anjar, both located in the state

of Gujarat. Both the plants have ETP with zero discharge facilities.

Capacities

FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Cotton yarn (MT) 1,30,000 1,30,000 1,30,000 3,05,000 3,05,000 3,05,000 3,05,000

Terry towel (MT) 43,800 43,800 45,000 50,000 60,000 60,000 70,000

Bath rugs & carpets (MT) 10,151 10,151 12,000 15,000 20,000 20,000 25,000

Bed linen products (Mn mtrs) 45 52 55 60 72 72 90

Products

Towels • WLSI is the largest supplier of bath towels in USA.

• The product range includes wash cloths, face towels, hand towels, bath towels, bath sheets and beach towels.

• WLSI manufactures a variety of towels to suit the needs of different customers from simple solid colour towels to complex

yarn-dyed jacquards.

• WLSI manufacture towels using carded/combed cotton, ring spun, zero twist, low twist and newly patented, Hygro cotton®

yarns.

Bath rugs/ • WLSI started bath rugs manufacturing facility with a capacity of 8 million pieces in 2009.

mats • With machine tufting and hand tufting capabilities, WLSI manufactures cotton, nylon, PET and polyester filament-based

Drylon and Resilon yarn rugs and the bi-component fibre (BCF) rugs called Kushlon.

• WLSI procures dope dyed Drylon, Resilon, Kushlon and Nylon yarns from its group company Welspun Syntex Ltd.

Area rugs • WLSI recently launched a vertically integrated line of area and accent rugs.

• WLSI expertise in fibre extrusion and design innovation helps it to offer diverse range of product and styles.

Bath robes • WLSI manufactures cotton terry-based bathrobes in all sizes and designs like the kimono, shawl, hood and zipper styles.

Bed sheets • WLSI forayed into bed sheets in FY05 at Anjar.

• WLSI manufactures solid-colour flat and fitted sheets, damask stripes, complex jacquards and woven dobby patterns across

all thread counts in cotton and blended yarn/fabric.

• It also has rotor and digital printing capabilities.

Utility bedding • WLSI manufactures pillow fillers, mattress pads and filled comforters at their Anjar facility.

& Fashion • WLSI has few unique patent-pending solution driven products in this area.

bedding • It also manufactures fashion core comforters in solid and stripes that coordinate with the bed sheets.

23WELSPUN INDIA


Key management personnel

Mr Rajesh R. Mandawewala – Managing Director, WLSI.

Ms Dipali Goenka – Executive Director – WLSI.

Mr Altaf Jiwani – Director (Finance) & CFO, WLSI.

Mr Suneel Mohnot – President (Commercial).

Mr Vikram Kumar – Sr. Vice President (Human Resources).

Mr Mukesh Savlani – Vice President, Marketing.

Mr Anil Channa – Director Operations – WLSI Anjar plant.

Mr A.K. Joshi – Director Operations – WLSI Vapi plant.

Mr Barry Leonard – President & CEO ( Welspun USA).

Corporate Social Responsibility (CSR)

On the CSR side, WLSI is working on three major areas i.e. Education, empowerment of

women and environment & health. On the education front, WLSI runs education programme

in various government schools (5,720 students), runs 2 CBSE affiliated schools (2,060 students)

and runs 4 pre-primary education centres. To bring the socio-economic change it runs 8

vocational centres to train the women employees and provide them self employment. WLSI

runs various initiatives for sustainable environment through tree plantation, waste water

recycling, rain water harvesting, drinking water purification, etc.

Corporate structure

Source: Company

24WELSPUN INDIA


49.6

50.351.5

52.0 52.051.0 50.5

21.922.723.924.020.5

11.4

16.3

9.79.49.610.2

(2.9)

6.1

12.6

45

47

49

51

53

55


%

(5)

0

5

10

15

20

25

30

%

Gros s margin (LHS) EBITDA margin (RHS)PAT margin (RHS)

44 41 41 41 41 42 43

25 31 25 29 29 30 30

4 5 6 5 6 6 717 11 15 11 12 12 129 11 11 11 10 8 7

1222321

0

20

40

60

80

100


%

Terry towels Bed linen products Rugs OthersSubs idiaries Other operating income

32 36 45 53 60 68 80

13.3

16.314.3

13.0

18.023.3

0

10

2030

40

50607080

90


Rs

bn

0

5

10

15

20

25

%

Revenue (LHS) Revenue Growth (RHS)

Financial statement analysis

Consolidated revenue and Revenue growth Consolidated revenue product mix

Source: Company, B&K Research. Note: Classification of product revenue is based on standalone numbers.

Expenses break-up (Consolidated)

(%) FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Cost of material consumed 49.7 48.5 50.4 48.0 48.0 49.0 49.5

Gross margin 50.3 51.5 49.6 52.0 52.0 51.0 50.5

Employees cost 9.5 7.6 7.6 8.4 8.5 8.8 8.8

Power & fuel cost 7.5 7.2 2.6 2.2 2.3 2.3 2.3

Other operating expenses 22.0 20.4 18.9 17.3 17.3 17.3 17.6

EBITDA margin 11.4 16.3 20.5 24.0 23.9 22.7 21.9

Revenue growth and EBITDA growth

Gross margin, EBITDA margin and PAT margin (% ofrevenue)


13.3

23.318.0 16.314.313.0

52.338.3

54.962.4

57.7

12.38.3

12.20

10

20

30

40

50

60

70


%

Revenue growth EBITDA growth

25WELSPUN INDIA


28 28 33 31 34 34 34

110 109 108 119 127 127 127

(85) (105) (89) (94) (87) (87) (87)

54 31 52 56 74 74 74

(150)

(100)

(50)

0

50

100

150

200

FY12 FY13 FY14 FY15P FY16E FY17E FY18E

Day

s

Receivable days Inventory daysPayable days Total days

7764

57

723

56 5437

23

87103

112125 126

0

20

40

60

80

100

120

140


Rs

Adjus ted EPS Cash EPS

Power & fuel cost (% of revenue) Employees cost (% of revenue)


EPS and Cash EPS (Rs) Market price and Book value (Rs/share)

Source: Company, B&K Research. Note: Market price per share for FY16 to FY18 are based on our target price.

Working capital cycle Net block/Gross block (Fixed assets)


2,40

4

2,63

3

1,17

4

1,18

7

1,37

8

1,57

5

1,83

1

2.32.32.32.22.6

7.27.5

0

500

1,000

1,500

2,000

2,500

3,000


Rs

mn

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

%

Power & fuel cos t (LHS) % of revenue (RHS)

3,05

1

2,76

8

3,40

1

4,46

0

5,09

1

5,99

0

7,00

6

7.6 7.6

8.4 8.58.8 8.8

9.5

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Rs

mn

5.05.56.06.57.07.58.08.59.09.510.0

%

Employees cos t (LHS) % of revenue (RHS)

101

976

811

45 68

356

713

229 28382 99111

143 183

2.5

0.90.70.6

3.5

3.93.5

0

200

400

600

800

1,000

1,200


Rs/

shar

e

0.00.51.01.52.02.53.03.54.04.5

x

Market price (Rs/share) Book value (Rs/share)Price/book value (x)

25.1

27.8

36.1

45.6

55.6

60.6

64.1

15.8

16.3

18.4

24.7

30.2

30.4

28.9

0.50.50.50.50.50.6

0.6

0

10

20

30

40

50

60

70


Rs

bn

0.1

0.3

0.5

0.7

0.9

x

Gros s block (LHS)Net block (LHS)Net block/ Gros s block (x) (RHS)

26WELSPUN INDIA


113(630)519206082431,092

(20,000)(15,000)(10,000)

(5,000)0

5,00010,00015,00020,000


Rs

mn

CFO (Before WC changes ) WC changesCapex Inves tment, loans & advancesCFF Changes in cash

53.9

26.5

9.5

30.0

42.5

35.131.3

6.22.112.6 10.2 9.6 9.4 9.7

1.0 1.0 1.11.01.01.01.0

3.74.3

2.83.2

4.34.6

4.3

0

10

20

30

40

50

60


%

0

1

2

3

4

5

x

RoE (%) Net profit margin (%)As set turnover (x) Leverage factor (x)

Return ratios Net debt/Equity and Net debt/EBITDA


DuPont analysis – RoE


Cash flow analysis


30.031.335.1

53.9

26.5

9.5

42.5

23.4 21.7 21.4 23.4

8.9

16.3

10.09.710.3 7.57.37.8

9.510.8

0

10

20

30

40

50

60


%

RoE RoCE Implied Interes t Rate

1.12.21.8

2.4

1.6 1.51.2

0.8

1.72.01.9

3.03.1

4.6

0.0

1.0

2.0

3.0

4.0

5.0


x

Net debt/Equity (x) Net debt/EBITDA (x)

27WELSPUN INDIA


Detailed financials

Income Statement (Consolidated)

Yr end 31 Mar (Rs mn) Mar 12 Mar 13 Mar 14 Mar 15 Mar 16E Mar 17E Mar 18E

Net sales 32,205 36,473 44,954 53,025 59,896 68,462 79,609

Growth (%) 52.3 13.3 23.3 18.0 13.0 14.3 16.3

Operating expenses (28,544) (30,527) (35,743) (40,283) (45,581) (52,956) (62,215)

Operating profit 3,662 5,946 9,211 12,742 14,315 15,507 17,395

EBITDA 3,662 5,946 9,211 12,742 14,315 15,507 17,395

Growth (%) 57.7 62.4 54.9 38.3 12.3 8.3 12.2

Depreciation (1,378) (1,449) (6,863) (3,329) (4,570) (4,824) (4,990)

Other income 460 492 1,042 949 800 800 700

EBIT 2,744 4,990 3,389 10,362 10,545 11,483 13,104

Finance cost (1,918) (1,977) (2,352) (2,829) (2,340) (2,244) (2,102)

Exceptional & extraordinary (795) (31) – – – – –

Profit before tax 30 2,982 1,037 7,533 8,205 9,239 11,002

Tax (current + deferred) (193) (733) (199) (2,090) (2,461) (2,772) (3,301)

P/(L) for the period (163) 2,248 838 5,443 5,743 6,467 7,702

P/L of Associates, Min Int, 29 – 82 (45) – – –

Pref Div

Reported profit/(Loss) (134) 2,248 921 5,398 5,743 6,467 7,702

Adjusted net profit 662 2,279 5,659 5,398 5,743 6,467 7,702

Growth (%) 4,619.5 244.5 148 -4.6 6.4 12.6 19.1

28WELSPUN INDIA


Balance Sheet (Consolidated)

Yr end 31 Mar (Rs mn) Mar 12 Mar 13 Mar 14 Mar 15P Mar 16E Mar 17E Mar 18E

Share capital 890 1,000 1,003 1,005 1,005 1,005 1,005

Reserves & surplus 6,433 8,902 10,093 13,314 17,377 21,953 27,402

Shareholders’ funds 7,323 9,902 11,096 14,319 18,382 22,958 28,407

Minority interest and others 355 250 317 378 378 378 378

Non-current liabilities 11,374 12,030 18,782 17,607 20,158 19,963 19,370

Long-term borrowings 9,812 10,039 16,795 15,946 18,446 18,196 17,546

Other non-current liabilities 1,563 1,991 1,988 1,661 1,712 1,766 1,823

Current liabilities 16,307 16,398 21,489 24,650 26,014 25,539 24,628

ST borrowings, curr maturity 9,730 10,240 13,498 12,534 13,435 11,531 8,923

Other current liabilities 6,577 6,157 7,990 12,115 12,579 14,008 15,706

Total (equity and liab.) 35,360 38,579 51,684 56,953 64,932 68,837 72,783

Non-current assets 19,814 22,108 28,336 29,397 34,120 34,469 33,168

Fixed assets (net block) 17,015 16,861 23,770 26,049 30,651 30,876 29,432

Non-current investments 8 537 473 15 16 17 17

Long-term loans and adv. 1,105 1,559 1,232 1,377 1,515 1,667 1,833

Other non-current assets 1,685 3,151 2,860 1,955 1,938 1,910 1,885

Current assets 15,546 16,471 23,348 27,557 30,812 34,369 39,615

Cash & current investment 2,679 2,118 2,974 4,657 3,303 2,672 2,785

Other current assets 12,867 14,353 20,374 22,900 27,510 31,696 36,829

Total (assets) 35,359 38,579 51,684 56,953 64,932 68,837 72,783

Total debt 19,542 20,279 30,293 28,480 31,881 29,727 26,469

Capital employed 28,783 32,422 43,694 44,838 52,354 54,829 57,077

29WELSPUN INDIA


Cash Flow (Consolidated)

Yr end 31 Mar (Rs mn) Mar 12 Mar 13 Mar 14 Mar 15P Mar 16E Mar 17E Mar 18E

Profit before tax 30 2,982 1,037 7,533 8,205 9,239 11,002

Depreciation 1,378 1,449 6,863 3,329 4,570 4,824 4,990

Change in working capital (616) (2,335) (2,976) 1,510 (4,234) (2,856) (3,546)

Total tax paid (569) (319) (1,681) (1,884) (2,461) (2,772) (3,301)

Others 1,918 1,977 2,352 2,829 2,340 2,244 2,102

Cash flow from oper. (a) 2,142 3,753 5,595 13,318 8,420 10,679 11,247

Capital expenditure (2,243) (1,295) (13,772) (5,609) (9,172) (5,049) (3,547)

Change in investments (198) 274 (184) (305) 1,404 (1) (1)

Others 997 (691) 375 852 (34) (20) (22)

Cash flow from inv. (b) (1,444) (1,711) (13,581) (5,062) (7,801) (5,070) (3,570)

Free cash flow (a+b) 697 2,042 (7,986) 8,256 618 5,610 7,677

Equity raised/(repaid) 1 124 12 1 – – –

Debt raised/(repaid) 2,144 737 10,014 (1,813) 3,401 (2,154) (3,258)

Dividend (incl. tax) 0 (442) (357) (1,234) (1,680) (1,891) (2,253)

Others (1,751) (2,218) (1,076) (4,290) (2,289) (2,194) (2,054)

Cash flow from fin. (c) 395 (1,799) 8,594 (7,336) (568) (6,240) (7,564)

Net chg in cash (a+b+c) 1,092 243 608 920 51 (630) 113

30WELSPUN INDIA


Balance Sheet (Consolidated)

Period end (Rs mn) Mar 15P Mar 16E Mar 17E Mar 18E

Share capital 1,005 1,005 1,005 1,005

Reserves & surplus 13,314 17,377 21,953 27,402

Shareholders’ funds 14,319 18,382 22,958 28,407

Minority interests and others 378 378 378 378

Non-current liabilities 17,607 20,158 19,963 19,370

Long-term borrowings 15,946 18,446 18,196 17,546

Other non-current liabilities 1,661 1,712 1,766 1,823

Current liabilities 24,650 26,014 25,539 24,628

ST borrowings, curr maturity 12,534 13,435 11,531 8,923

Other current liabilities 12,115 12,579 14,008 15,706

Total (equity and liab.) 56,953 64,932 68,837 72,783

Non-current assets 29,397 34,120 34,469 33,168

Fixed assets (net block) 26,049 30,651 30,876 29,432

Non-current investments 15 16 17 17

Long-term loans and advances 1,377 1,515 1,667 1,833

Other non-current assets 1,955 1,938 1,910 1,885

Current assets 27,557 30,812 34,369 39,615

Cash & current investment 4,657 3,303 2,672 2,785

Other current assets 22,900 27,510 31,696 36,829

Total (assets) 56,953 64,932 68,837 72,783

Total debt 28,480 31,881 29,727 26,469

Capital employed 44,838 52,354 54,829 57,077

Income Statement (Consolidated)

Period end (Rs mn) Mar 15 Mar 16E Mar 17E Mar 18E

Net sales 53,025 59,896 68,462 79,609

Growth (%) 18.0 13.0 14.3 16.3

Operating expenses (40,283) (45,581) (52,956) (62,215)

Operating profit 12,742 14,315 15,507 17,395

EBITDA 12,742 14,315 15,507 17,395

Growth (%) 38.3 12.3 8.3 12.2

Depreciation (3,329) (4,570) (4,824) (4,990)

Other income 949 800 800 700

EBIT 10,362 10,545 11,483 13,104

Finance cost (2,829) (2,340) (2,244) (2,102)

Profit before tax 7,533 8,205 9,239 11,002

Tax (current + deferred) (2,090) (2,461) (2,772) (3,301)

P/(L) for the period 5,443 5,743 6,467 7,702

P/L of Associates, Min Int, Pref Div (45) 0 0 0

Reported Profit/(Loss) 5,398 5,743 6,467 7,702

Adjusted net profit 5,398 5,743 6,467 7,702

Growth (%) (4.6) 6.4 12.6 19.1

Cash Flow Statement (Consolidated)

Period end (Rs mn) Mar 15P Mar 16E Mar 17E Mar 18E

Profit before tax 7,533 8,205 9,239 11,002

Depreciation 3,329 4,570 4,824 4,990

Change in working capital 1,510 (4,234) (2,856) (3,546)

Total tax paid (1,884) (2,461) (2,772) (3,301)

Others 2,829 2,340 2,244 2,102

Cash flow from oper. (a) 13,318 8,420 10,679 11,247

Capital expenditure (5,609) (9,172) (5,049) (3,547)

Change in investments (305) 1,404 (1) (1)

Others 852 (34) (20) (22)

Cash flow from inv. (b) (5,062) (7,801) (5,070) (3,570)

Free cash flow (a+b) 8,256 618 5,610 7,677

Equity raised/(repaid) 1 0 0 0

Debt raised/(repaid) (1,813) 3,401 (2,154) (3,258)

Dividend (incl. tax) (1,234) (1,680) (1,891) (2,253)

Others (4,290) (2,289) (2,194) (2,054)

Cash flow from fin. (c) (7,336) (568) (6,240) (7,564)

Net chg in cash (a+b+c) 920 51 (630) 113

Key Ratios (Consolidated)

Period end (%) Mar 15P Mar 16E Mar 17E Mar 18E

Adjusted EPS (Rs) 53.7 57.2 64.4 76.7

Growth (4.7) 6.4 12.6 19.1

CEPS (Rs) 86.9 102.7 112.4 126.3

Book NAV/share (Rs) 142.5 183.0 228.5 282.8

Dividend/share (Rs) 10.5 14.3 16.1 19.2

Dividend payout ratio 22.9 29.2 29.2 29.2

EBITDA margin 24.0 23.9 22.7 21.9

EBIT margin 19.5 17.6 16.8 16.5

Tax rate 27.7 30.0 30.0 30.0

RoCE 23.4 21.7 21.4 23.4

Net debt/Equity (x) 1.6 1.5 1.2 0.8

Net Debt/EBITDA (x) 1.9 2.0 1.7 1.1

Du Pont Analysis - ROE

Net margin 10.2 9.6 9.4 9.7

Asset turnover (x) 1.0 1.0 1.0 1.1

Leverage factor (x) 4.3 3.7 3.2 2.8

Return on equity 42.5 35.1 31.3 30.0

Valuations (Consolidated)

Period end (x) Mar 15P Mar 16E Mar 17E Mar 18E

PER 6.6 11.3 10.1 8.4

PCE 4.1 6.3 5.8 5.1

Price/Book 2.5 3.5 2.8 2.3

Yield (%) 3.0 2.2 2.5 3.0

EV/EBITDA 4.7 6.5 5.9 5.1

B&K RESEARCH

B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd.

B&K Investment Ratings.

LARGE CAP MID CAP SMALL CAP(Market Cap > USD 2 bn) (Market Cap of USD 200 mn to USD 2 bn) (Market Cap <USD 200 mn)

BUY >+20% (absolute returns) >+25% (absolute returns) >+30% (absolute returns)

OUTPERFORMER +10% to +20% +15% to +25% +20% to +30%

UNDERPERFORMER +10% to -10% +15% to -15% +20% to -20%

SELL <-10% (absolute returns) <-15% (absolute returns) <-20% (absolute returns)

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Disclosures, applying to B&K and the Analyst (together with associates and family members)

Ownership interest in the issuer of the securities mentioned < 1%

Other financial interest in the issuer None

Other material conflict of interest None

Compensation/benefits received from issuer/3rd Parties in past 12 months:

Public offerings managed/co-managed for issuer None

Fees for merchant banking, investment banking or brokerage services (as percentage of issuer’s turnover) < 0.1%

Compensation for other services (as percentage of issuer’s turnover) < 0.1%

Analyst service as officer, director or employee of the issuer None

Involvement in market-making in the issuer’s securities None

B&K Universe Profile

By Market Cap (US$ mn) By Recommendation

92

64

23

0 3

129

0

20

40

60

80

100

120

140

160

Buy OP UP Sell NR UR

no. o

f com

pani

es

33

158

120

0

2040

6080

100

120

140160

180

> $2bn $200mn - $2bn <$200mn

no. o

f com

pani

esJULY 2015

B & K SECURITIES INDIA PRIVATE LTD.Equity Research Division: City Ice Bldg., 298, Ground/1st Floor, Perin Nariman Street, Behind RBI, Fort, Mumbai - 400 001, India. Tel.: 91-22-4031 7000, Fax: 91-22-2263 5020/30.

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